Money Market Definitions
Here are some financial money market definitions, that are pertinent to Money Market Instruments:
- APY - Also referred to as the Annual Percentage Yield. This is the effective annual rate of return taking into account the
effect of compounding interest. An APY will always be higher than a stated Interest Rate, as long as compounding takes place.
- Certificate of Deposit (CD) - is a short to medium-term FDIC-insured investment availabel at banks and Savings & Loan institutions.
CD's are very low risk investments that yield a predetermined interest rate for a specified fixed duration. CD's are not considered a
liquid investment, since harsh penalties are imposed for early withdrawals before maturity.
- FDIC (Federal Deposit Insurance Corporation) - This is the U.S. Corporation insuring deposits in the U.S. against bank failure.
The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of
sound banking practices.
- Interest Rate - The monthly effective rate paid (or received if you are a creditor) on borrowed money. Expressed
as percentage of the sum borrowed. For example, depositing $ 1,000 into a money market account that is paying a 4 % interest rate,
would result in that you are paid $ 40 per year in interest.
- Liquid Investment - An investment such as a Savings Account or Money Market, where you have immediate access to it.
You can withdraw from these types of accounts, without ever incurring any sort of interest penalty, and there are relatively no
delays to obtaining your money upon request.
- Money Market Account (MMA) - A savings account that offers the competitive rate of interest, normally in exchange for larger-than-
normal deposits. However, a new wave of internet-based Money Market accounts (described on this site), offer these competitive
rates of interest without any minimum deposit required. MMA's invest in short-term securities by the bank or investment company managing
the account. MMA's typically offer higher rates of interest over Savings account, but very oftern require a minimum deposit or balance.
MMA's are also insured by the FDIC.
- Savings Account - An account where your receive interest on your deposits and the FDIC insures your savings up to $ 100,000.
Usually, savings accounts yield low rates, that generally tend not to keep up with inflation.
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